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Wednesday, May 29, 2013

What Social And Casual Internet Game Companies Can Learn From Online Gambling

Recently I have published blog items primarily focused on educating online gambling operators on the virtues and threat of social games to their operations. In point of fact, I have been a bit unfair to the online gambling operators because I have not highlighted their strong points and how social and casual game operators could learn a few lessons from them. Indeed, online gambling operators have a lot to be proud of and social and casual game operators can learn from online gambling businesses.

The Regulated World - Sooner or later the authorities are going to take social and casual game operators more seriously. The amount of virtual currencies transactions being processed , under age issues and social games that mimic real gambling games are a few of the items that are going to trip a wire in some jurisdiction causing the social game companies to engage in practices that online gambling companies have had to comply with and implement to keep their licensees.

The list of activities and requirements that online gambling operators have to attend to remain legal and safe operators is staggering and non trivial to maintain and implement. To name a few, regulatory legal counsel, auditing regimes, employee background checks, increased charge back management oversight, auditings of software platforms, game outcome monitoring to assure fair and random outcomes, upgrading of networks and hardware to address denial of service and intrusion attacks, etc. These activities, systems and safe guards are common practice for online gambling operators existing in regulated environments. The enforcement of these safeguards does create an expense overhead beyond the thresholds that social gaming companies are comfortable with. However, the time is coming when social game companies will have to pick up their game and comply with external regulations that require processes already used by online gambling operators.

Online Gambling Companies Are Banks - Most online gambling companies have the concept of deposits and accounts to allow for the deposit of funds to game play and for the ability to withdraw funds when needed. Social and casual game companies have not followed this model because they do not have the concept of a cash withdrawal. Virtual currency does accumulate and is referenced as a line item in an accounting system. However, virtual currencies, as of this date, remain in the virtual world. I suspect this is going to change slightly as virtual currencies become exchangeable amongst themselves and consumers demand the ability to take their currency to another site or game property. Facebook credits are a defacto standard within Facebook and Facebook is not allowing exchanges or transfers between currencies right now. However, I suspect this is going to be challenged as unfair resulting in a potential anti trust or monopoly claim requiring them to allow for cash out and exchange. This will require social gaming companies to have exchange rate virtual currency systems, cash equivalent calculations for virtual currency and the ability to redeem virtual currency from a virtual currency depository. This all looks very much like the only gambling world.

Code Quality And Speed To Market - Social game companies are notorious for poor quality releases and bugs in their game releases. They do this because their is a higher value placed on new content releases relative to the quality of the overall game experience. This is tolerated because of the perceived notion that the games are for fun and not for money. This practice becomes less tolerable as players invest larger amounts of virtual currency into games changing the value proposition for players.

Conversely, Online gambling companies have to be very careful about releasing code that results in incorrect calculations, game outcome flaws, unannounced outages, etc. This is the case because of the amount of money involved and the need to get it right and having a system running all the time. Their new content releases are less frequent then in the social gaming world not because they have poor developers but because the quality standards are higher based on consumer perception of the value proposition..

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Niche Markets And Profitability - Online gambling companies have the ability to address comparatively tiny markets relative to casual and social gaming companies and still make money. Social and casual gaming companies struggle with profitability even at the high usage numbers they experience. They do use a number of monetization methods to get to break even. However, their player numbers still have to be very high to achieve profitability. Social gaming competition has already gotten to the point where mass adoption of a single game is very hard( expensive) requiring social and casual game companies to begin to figure out how to carve out small market segments and make money off of these markets. Gambling companies make games specifically for niche markets that have the potential for generating enough revenue to justify the games development. This goes beyond language localization. Gambling companies also look at cultural differences that impact user interface design and preferences of players. If you can successfully design a game that is truly unique and specialized for a market you can acquire a significant percentage of market share over companies that genericize their games . The social gaming companies might take a look at how the online gambling companies are achieving this and try and copy their techniques.

The online gambling operators are doing many things very well and better then the social game companies. The gambling companies are also very familiar with a regulated world and know how to successfully compete in a regulated environment. Social and casual game companies need to prepare for the day when their world looks very similar to the online gambling world taking some advice from the online gambling world may be a good idea.

Kevin Flood is the CEO of Gameinlane, Inc. Kevin writes extensively about online games and their impact and integration into iGaming and E-commerce environments. Kevin is a frequent speaker at online game events and conferences in Asia, Europe and the US. Kevin and his Gameinlane team are currently working with online gambling, social gaming and e-commerce companies integrating social gaming with online gaming operations and integrate game mechanics into e-commerce applications.